Indonesia: Indonesia Takes Tax Action To Improve Economy

Indonesia's Government has announced that it will take a series of measures, largely targeted at boosting exports and cutting imports, to help reduce the country's rising trade deficit and protect its falling currency, but also to increase investment in labor-intensive industries.

Chief Economic Minister Hatta Rajasa, disclosing basic details of the proposals, said that the Government is to increase the import tax on luxury goods, such as cars, private planes and yachts. For example, the tax for imported completely built-up cars will be raised from around 75 percent to 125-150 percent. In addition, oil imports are likely to be cut by increasing the use of biodiesel used in diesel production.

As regards exports, quotas on the export of mineral and metal ores will be lifted, while tax incentives will be provided for labor-intensive industries that export at least 30 percent of their total production.

Other measures to be introduced for increasing investment will include improved, investor-friendly licensing procedures and the provision of tax holidays and allowances for investments in crude palm oil, rattan, cocoa, bauxite, nickel and copper production.

While the overall package is being seen as an attempt by the Government to respond to the present difficult economic uncertainty, it has also been noted that, rather than giving tax and quota assistance to the commodity producers that currently provide over two-thirds of Indonesia’s exports, a longer-term reaction would have seen tax measures to incentivize the production and export of value-added processed and manufactured goods.

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